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Press Release

Banc of California Reports Third Quarter 2019 Earnings

Company Release - 10/23/2019 6:00 AM ET

SANTA ANA, Calif.--(BUSINESS WIRE)-- Banc of California, Inc. (NYSE: BANC) today reported a net loss for the third quarter of $22.7 million, resulting in a diluted loss per common share of $0.45.

Highlights for the third quarter (as compared to second quarter 2019) included:

  • Noninterest-bearing deposits increased $114 million
  • Cost of deposits decreased by 14 basis points to 1.48%
  • Noninterest expense was $43.3 million
  • Executed on the sale of $371 million of low-yielding and long duration mortgage-backed securities, furthering the ability to remix the investment portfolio
  • Completed tender offer for $46 million of preferred stock, inclusive of premium and accrued dividends
  • The total risk–based capital ratio was 14.31% and the tier 1 leverage ratio was 9.84% at the end of the quarter
  • The net loss available to common stockholders for this quarter is largely the result of a $35 million charge-off, or $0.60 per diluted common share, related to a loan originated in November 2017 to a borrower that has been the purported subject of a fraudulent scheme, as previously reported by the Company on Form 8-K.

“The third quarter results reflect the continued progress and execution on our strategy to improve the foundation and earnings power of the Company for the long term, lowering deposit costs, reducing our expenses and eliminating non–core assets,” said Jared Wolff, President and Chief Executive Officer of Banc of California. “The deposit initiative we began in May has brought in over $100 million of low cost deposits. We are seeing expenses stabilize at a significantly reduced level, and have made considerable progress in right sizing our balance sheet.”

Mr. Wolff continued, “During the quarter, we also executed on specific initiatives to simplify and optimize our balance sheet and create flexibility. As a result of these efforts, we are well positioned to consider additional capital management strategies in the coming quarters. Despite the significant loss we reported during the quarter from the borrower fraud that resulted in a charge–off of the loan originated in 2017, we continue to maintain strict credit quality standards which are in line with our relationship-lending focus. Overall, we remain well positioned on both sides of the balance sheet in the current environment, with opportunity to further reduce our cost of deposits and to remix our loan portfolio to protect yield as we build out our focused business banking and bridge lending platforms. I’m pleased to see the progress the bank made during this past quarter and look forward to continued execution as we close out 2019.”

Speaking specifically about balance sheet activity for the quarter, John Bogler, Chief Financial Officer of Banc of California, said, “We continue to make great strides in building a core balance sheet that will allow us to be high performing. During the quarter, we sold $574 million of low coupon multifamily loans, repaid high cost brokered deposits, tendered for $46 million of high cost preferred equity and we took the opportunity to sell longer duration, low yielding mortgage–backed securities at the end of the quarter. This will allow us to start the process of remaking the securities portfolio. All of these actions will begin to translate into a higher performing balance sheet as we head into next year.”

Business Results - Income Statement Highlights

 

Three Months Ended

 

Nine Months Ended

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

September 30,
2019

 

September 30,
2018

Total interest and dividend income

$

92,657

 

 

$

104,040

 

 

$

110,712

 

 

$

111,130

 

 

$

107,774

 

 

$

307,409

 

 

$

311,666

 

Total interest expense

33,742

 

 

39,260

 

 

42,904

 

 

40,448

 

 

36,582

 

 

115,906

 

 

96,272

 

Net interest income

58,915

 

 

64,780

 

 

67,808

 

 

70,682

 

 

71,192

 

 

191,503

 

 

215,394

 

Provision for (reversal of) loan and lease losses

38,540

 

 

(1,987

)

 

2,512

 

 

6,653

 

 

1,410

 

 

39,065

 

 

23,562

 

Net interest income after provision for loan and lease losses

20,375

 

 

66,767

 

 

65,296

 

 

64,029

 

 

69,782

 

 

152,438

 

 

191,832

 

Total noninterest income (loss)

3,181

 

 

(2,290

)

 

6,295

 

 

2,448

 

 

4,824

 

 

7,186

 

 

21,467

 

Total noninterest expense

43,307

 

 

43,587

 

 

61,835

 

 

49,569

 

 

60,877

 

 

148,729

 

 

183,216

 

Income tax (benefit) expense

(5,619

)

 

4,308

 

 

2,719

 

 

6,117

 

 

3,301

 

 

1,408

 

 

(1,273

)

(Loss) income from continuing operations

(14,132

)

 

16,582

 

 

7,037

 

 

10,791

 

 

10,428

 

 

9,487

 

 

31,356

 

Income from discontinued operations

 

 

 

 

 

 

247

 

 

668

 

 

 

 

3,078

 

Net (loss) income

$

(14,132

)

 

$

16,582

 

 

$

7,037

 

 

$

11,038

 

 

$

11,096

 

 

$

9,487

 

 

$

34,434

 

Net interest income

Q3 2019 vs Q2 2019.

Net interest income for the third quarter decreased to $58.9 million as we sold non-core assets and repaid high cost funding liabilities during the quarter. For the third quarter, average interest-earning assets declined from the prior quarter by $926 million to $8.2 billion, while the net interest margin remained flat at 2.86% between quarters. We continue to execute on our strategy of disposing of lower yielding, non-core assets and rebalancing our portfolio.

Our average yield on interest-earning assets declined to 4.50% for the third quarter as compared to 4.59% for the second quarter of 2019, primarily attributable to a decrease in our average yield on loans and securities. Our average yield on loans came in at 4.75% for the third quarter which decreased by 5 basis points from the prior quarter, primarily attributable to variable rate loans repricing and lower average balance of higher yielding commercial and industrial loans, partially offset by the settlement of the Freddie Mac multifamily securitization which consisted of lower yielding loans. Our average yield on securities decreased 23 basis points primarily as a result of the quarterly interest rate resets on our collateralized loan obligations (“CLO”) and the sales of CLOs that occurred during the second quarter of 2019. We sold a significant amount of CLOs during the second quarter, with the full impact of the second quarter sales reflected in the third quarter.

Our average cost of interest-bearing liabilities decreased to 2.03% for the third quarter from 2.09% for the second quarter, primarily resulting from a 14 basis point decrease in our average cost of total deposits from the prior quarter to 1.48%. Non-interest bearing deposits increased by $114 million in the third quarter. The decrease in our cost of deposits from the prior quarter primarily resulted from the continued execution of our deposit strategy to focus on relationship-based clients and de-emphasize high-rate transactional customers and brokered certificates of deposit.

YTD 2019 vs YTD 2018.

Net interest income for the nine months ended September 30, 2019 decreased to $191.5 million as compared to $215.4 million for the same period in 2018 primarily as a result of the sale of CLOs in 2019 and the overall higher cost of funding, both mostly offset by higher yields on assets driven by the higher interest rate environment and loan growth in almost all loan categories. For the nine months ended September 30, 2019, average interest-earning assets declined $699 million from the prior period to $9.01 billion, while the net interest margin decreased to 2.84% from 2.97% for the comparable 2018 period.

Our average yield on interest-earning assets increased 26 basis points to 4.56% for the nine months ended September 30, 2019 as compared to 4.30% for the comparable 2018 period, due to increased yields in the loan and securities portfolios as well as an increased mix of loans versus securities. Our average yield on loans came in at 4.77% for the nine months ended September 30, 2019, compared to 4.61% during the comparable 2018 period, primarily attributable to overall increases in market rates between periods. Our average yield on securities increased 22 basis points primarily as a result of an interest rate reset on our CLOs, partially offset by a decreas